The Locus of Control and Taking Charge of Your Money

By Mindy Crary, MBA, CFP®

Let’s imagine two people, Benny and June. They’re both in their mid 30s, both have mid-level jobs, and both have some debt in the form of student loans, mortgages, and a couple thousand dollars in credit card debt.

Benny is constantly stressed out about money. He struggles to make ends meet, doesn’t have a savings plan, and has no idea where his money is going. He doesn’t think there’s any way out of his troubles unless he gets a huge raise at work or wins the lottery.

June has the same financial obligations, but she feels pretty confident about her money situation. She puts a little money in savings every month — even though it’s less than she’d like — and she has a plan to pay down her credit card debt. She knows she’ll be in a much better financial situation in another six months or so, once that debt is gone.

What’s the difference between these two?

You might think it’s that June has a plan and Benny doesn’t, but it’s actually more basic than that. June believes she has control over her situation while Benny doesn’t. June has an internal locus of control, while Benny has an external locus of control.

What is Locus of Control?
In psychology, locus of control is considered an important aspect of personality. The concept was developed originally by Julian Rotter in the 1950s. Locus of control refers to an individual’s perception about the underlying main causes of events in his or her life. Put simply: Do you believe that your destiny is controlled by yourself, or do you believe that your destiny is controlled by external forces (such as fate, God, or powerful others)?

Your answer to that question is likely to predict your progress to wealth, your earning power, work satisfaction, stress levels, and how far you’re likely to go when you set a goal for yourself.

A locus of control orientation is a belief about whether the outcomes of our actions are contingent on what we do or on events outside our personal control. Someone with an external locus of control believes that her behavior is guided by fate, luck, or other external circumstances. For example, if she is late for work, she might blame the terrible traffic. On the other hand, someone with an internal locus of control believes that her behavior is guided by her personal decisions and efforts. If she is late for work, she is more likely to blame herself for not leaving the house soon enough.

Because someone with an internal locus of control is more likely to take responsibility for his choices, he’s also more likely to put a plan into place to continue to make better choices. Someone with an external locus of control tends to focus on how his situation is not his fault, therefore feeling powerless to change the situation. This person will never even make a plan, let alone put one into action.

With money, it’s all about the long game, so understanding how your perceptions affect your decision making is key. Whether you find that you tend to be internal or external now, the good news is that you can switch to more of an internal focus over time. Try these tactics:

Know that you always have a choice. It might not be a great one, but there is always a choice. You’re not trapped or locked into one action, and your situation does not depend on luck.

Brainstorm alternatives. Whenever you feel like you have no choice, make it a game to find another option. Don’t allow yourself to feel trapped.

Practice finding alternatives, before an issue arises. Try this with low value issues first to develop the “options” muscle. For example, if you drive the same way to work every day, make a list of three different routes you could take and then try them.

Stop speaking in absolutes. Listen to how often you comment negatively or positively in your self-talk. Phase out phrases like, “I have no choice” and, “I can’t.” When you catch yourself making those kind of negative comments, replace them with “I choose not to,” or, “I don’t like my choices, but I will…”

Mindy Crary is a member of the DailyWorth Connect program. Read more about the program here.

Mindy Crary, MBA, CFP® is a personal finance expert and founder of Creative Money, a resource for individuals and entrepreneurs to help them gain clarity and confidence around their financial picture without relying on a spreadsheet. Download Mindy’s free profit clarity tool for entrepreneurs here.

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